[ET Net News Agency, 15 November 2017] HSBC Global Research raised its target price for
Towngas China (TCCL)(01083) to HK$8 from HK$6.1, and maintained its "buy" rating.
The research house witnessed the development of the government's effort in converting
energy use from coal to natural gas during its recent site visits in mainland China. Based
on its discussions with government regulators in Beijing, HSBC believes local subsidies in
both urban and rural areas are in place to support end-users to switch from coal to gas.
Since the beginning of 2017, TCCL has been HSBC's top pick for the China gas utilities
sector. As the recovery story is already at play with gas volume growth becoming more
comparable with the larger gas companies, TCCL remains its most preferred stock for the
sector.
HSBC thinks TCCL should experience fewer downside risks from China's recent cap on gas
utilities at a 7% return, because most of its gas projects are young while profitability
is yet to ramp up.
The research house believes the stock deserves a re-rating on improving fundamentals,
while the valuation remains significantly discounted to comparable peers. HSBC noted that
the parent company has been increasing its stakes in TCCL since mid-2016 and believes any
group restructuring (e.g., privatization) initiated by major shareholder (Lee Shau Kee)
could be a positive catalyst. (KL)